AppLovin faces market volatility as it pushes deeper into ecommerce advertising

AppLovin closed out 2025 with sharp revenue growth and expanding profitability, even as investor skepticism intensified around its long-term positioning in advertising and software.

In its fourth-quarter earnings release, the company reported revenue of nearly $1.7 billion, marking a 66% year-over-year increase, while net income climbed to approximately $1.1 billion, up from $600 million in the same quarter a year earlier. The figures, detailed in its Q4 shareholder materials and earnings webcast, underscore continued momentum in its core advertising operations. Yet despite the performance, the company’s stock declined roughly 20% following the results, reflecting broader market unease around ad-tech valuations and subscription-driven software models.

At the center of the debate is AppLovin’s expansion beyond mobile gaming into ecommerce advertising—a strategy executives argue represents its next major growth vector.

Investor questions during the earnings call focused heavily on the scale and credibility of the company’s ecommerce advertising push. While AppLovin has built its reputation on mobile gaming performance marketing, management is now positioning ecommerce—particularly direct-to-consumer (DTC) and Shopify-based merchants—as a strategic frontier.

According to executives, ecommerce conversion rates remain below the levels achieved in gaming campaigns but are improving. Historically, ecommerce ad conversions hovered near 1% per 1,000 impressions; management indicated that performance is trending toward mid-single-digit percentages. By contrast, gaming campaigns can convert roughly 50 users per 1,000 impressions served.

The gap illustrates both the opportunity and the challenge. Higher conversion certainty allows the company’s bidding algorithms to assign significantly greater value to impressions. Executives noted that when predictive confidence is high, the system may bid aggressively on a CPM basis, reflecting the expected lifetime value of a user.

However, replicating gaming-level performance in ecommerce will require scale, data density and creative adaptation. Gaming advertisers often deploy tens of thousands of creative variations simultaneously. Ecommerce advertisers, by comparison, tend to run only hundreds of assets. That disparity limits optimization velocity.

To address this, the company has introduced generative AI-assisted creative tools within a pilot group of advertisers, aimed at producing video and rich media formats at scale. Management identified creative production—not media spend—as one of the principal bottlenecks to ecommerce adoption.

AppLovin’s leadership reiterated that advertising remains the foundation of its competitive positioning—not only as a revenue engine but also as a retention mechanism for publishers and developers.

Within mobile gaming, the company’s mediation and ad stack create a feedback loop: developers monetize inventory through the platform while simultaneously allocating user acquisition budgets back into it. Executives argued that this circular dynamic makes it difficult for competitors to displace the company solely on marginal improvements in mediation yield.

In ecommerce, however, that ecosystem effect is not yet established. Merchants do not depend on AppLovin for distribution in the same way game developers rely on its network for user acquisition. Building that dual dependency—supply and demand flowing through the same infrastructure—remains an open question.

Management framed its ambition in terms comparable to social platforms seeking advertiser growth: the goal is to onboard merchants into a performance-driven ad system where algorithmic optimization drives incremental revenue. Whether ecommerce advertisers will commit budgets at gaming-like intensity is still uncertain.

The company’s quarterly materials indicate strong operating leverage in its advertising business, with profit expansion outpacing revenue growth. That performance stands in contrast to broader pressure facing subscription software companies, many of which have encountered valuation compression amid investor concerns about AI-driven commoditization.

Short-seller scrutiny has also weighed on sentiment, contributing to heightened stock volatility over the past several years. Management characterized the market reaction as disconnected from underlying business fundamentals, pointing to sustained revenue acceleration and margin expansion.

Beyond client performance, analysts also questioned AppLovin’s own marketing practices, including how it acquires new advertisers for its Axon platform. Executives acknowledged that brand awareness and search visibility are still developing and suggested that brand-building efforts will complement direct-response strategies over time.

The central variable in AppLovin’s ecommerce thesis is conversion confidence. In performance advertising, even incremental improvements in predictive accuracy materially alter the value of impressions. If ecommerce conversion rates approach gaming benchmarks, the revenue potential would expand significantly due to higher bid ceilings and larger campaign budgets.

Yet ecommerce purchasing behavior differs structurally from in-app gaming installs, which are optimized around discrete download events. Retail conversions involve more complex decision cycles, variable cart values and broader attribution windows. Scaling performance to gaming-level efficiency may therefore require both creative innovation and deeper data integration.

For now, AppLovin enters 2026 with accelerating financial results, a widening profit base and a strategic bet on ecommerce as its next growth lever. Whether that expansion produces a comparable advertising flywheel to its gaming business will likely determine the trajectory of both investor confidence and long-term valuation.